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Euro zone inflation ticks up but unemployment lingers

The rate of inflation in the euro zone doubled in September, although unemployment remained high in the region, according to data from regional statistics agency Eurostat.

Euro zone inflation rose to 0.4 percent in September, from 0.2 percent in August, preliminary figures showed on Friday.

Meanwhile, the latest read of unemployment in the 19-country region came in at 10.1 percent in August, unchanged from July.

The rise in inflation was driven by a tick-up in the price of services, followed by food, alcohol and tobacco, and a less-steep decline in energy prices in September than in the previous month.

The news comes as questions are raised over the efficacy of the European Central Bank's monetary policy – which includes low or negative interest rates and a trillion euro corporate and sovereign bond-buying program -- aimed at boosting spending and growth.

A supermarket in France
PHILIPPE HUGUEN/AFP/Getty Images
A supermarket in France

There was speculation before the bank's last meeting earlier this month that it might extend the deadline for its bond-buying program (currently set to end in March 2017) but it surprised markets by failing to do so. In fact, ECB President Mario Draghi said the bank's monetary policy committee did not even discuss extending the program.

Rather, the bank signaled more worries for the euro zone, cutting its economic growth outlook for 2017 and 2018. It now forecasts an expansion of 1.6 percent in 2017 and 2018, down from its June forecast of 1.7 percent in both years.


Mixed blessings

Howard Archer, chief U.K. and European economist at IHS Markit, said in a note Friday that the data offered the ECB "mixed developments" for the bank to "chew over."

"The bank will be pleased to see euro zone consumer price inflation double to a 23-month high of 0.4 percent in September...However, the ECB will be less enamoured to see that core inflation remained stuck at 0.8 percent in September, and that the rise in headline inflation was entirely due to a marked narrowing in the year-on-year drop in energy prices."

"Also worrying for the euro zone and the ECB, euro zone unemployment edged up 8,000 in August, which was the second increase in the past three months," he said.

"This suggest that euro zone labour markets are currently stuttering in the face of recent slower growth and heightened uncertainty, following marked improvement over the past couple of years."

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